What many people don’t realize is that estate planning is not a one-time event. Significant life changes can happen after an initial plan is established, and it’s vital that your plan reflects those changes so that you can remain on track toward meeting your personal and financial goals. It’s therefore important to understand some of the most common life events that should prompt you to review and update your estate plan.
As you consider these changes and their impact on your life, your relationships, and your assets, it is helpful to retain dedicated legal counsel. An estate planning law firm can explain how five specific events could affect your plan, and how you should update it accordingly.
1. Getting Married or Divorced
A marriage or divorce can have wide-ranging effects on your estate plan, impacting not only who receives your assets but also who manages them and who cares for your children. Divorces can be especially complicated. In many states, a divorce automatically revokes a former spouse’s role as a personal representative and any bequests in your will, but these changes apply only to the ex-spouse; any friends or family members of your former spouse who are named in your will will remain unaffected. This means that you may need to appoint new individuals for important roles. It is also crucial to note that, beyond a will, other estate planning documents like powers of attorney and healthcare proxies generally remain valid after a divorce and will likely need to be updated.
2. Having a Child
The birth or adoption of a new child is another major change that should prompt a review of your estate plan. These are a few of the most common ways this event may affect you:
- Guardianship designation: You may have previously designated someone as a guardian of your minor children and named your children in your will or some other document. Since you have a new child, you need to update these documents to include them.
- Will: Likewise, you should update your last will and testament to reflect the new addition to your family. Whether you want to leave specific assets to your new child or simply split your total estate among all of your children, your will should cover all members of your family.
- Trusts: A trust is an important estate planning tool that allows a settlor to set aside assets for named beneficiaries. These typically include the settlor’s spouse as well as any children. Birth or adoption therefore requires updating the trust instruments.
3. Death or Illness of a Family Member
Estate plans involve a host of individuals who play key roles in administering your estate and making major decisions affecting your health, property, and finances. For instance, you may have named a sibling as the executor of your will, or a parent as the health care agent in your health care proxy, or your spouse as the agent in your durable power of attorney.
If one of these individuals passes away or becomes ill, and is therefore unable to discharge their duties, this could imperil your plan. If you die or become incapacitated without naming a replacement, the court may need to name someone. This can be expensive, time-consuming, and result in an unwanted individual serving in a key role. You can avoid this by ensuring that you update your plan whenever someone named in it experiences serious health concerns or passes on.
4. Buying or Selling a Home
A home is a major asset, and for most people, it is the most significant piece of property they will ever own. For this reason, it forms the centerpiece of any well-drafted estate plan. There are different scenarios that should cause you to review and update your last will and testament and other documents. They include:
- Selling your previous home and buying a new one
- Become a first-time homeowner
- Acquiring a second or vacation home
Again, a house is a significant asset, and you want to make sure that it is passed on correctly and otherwise handled properly in your estate plan. Talk to an attorney about making the necessary updates.
5. Changes in Your Financial Situation
Lastly, you should consider other significant changes to your finances, property, and wealth. Here are a few common examples:
- Increases or decreases in wealth
- Starting a new business or closing one
- A job promotion or loss
- Inheriting property
These and other changes may affect the structure and nature of your estate plan. For instance, if your wealth has grown or you have acquired more assets since you last reviewed your plan, you may need Medicare planning. This can allow you to preserve estate property while not detrimentally impacting your eligibility for Medicare.
Retirement planning is just one facet you need to think about if your financial situation has changed. There are also a number of tools you can use for what is known as asset protection planning. This refers to strategies that can shield your assets from creditor claims, litigation and court judgments, and excessive taxes. With an updated plan, you can keep more of what you have earned so you can pass it on to the next generation.
Don’t Let Life Changes Catch Your Estate Plan Off Guard
Life changes can occur suddenly, and you should never assume that any aspect of your estate plan will automatically adapt to them. These events are turning points for revisiting and updating your estate. As a matter of due diligence, you should also take a look at your plan every few years, even if you haven’t experienced any of the above changes, to ensure it is continuing to meet your needs and objectives.
If you need to update your plan or you aren’t sure how a life change may affect it, consult a knowledgeable estate planning law firm. This can allow you to rest assured that your and your family’s future are in good hands.
